Week 1 - Business Objectives And Strategy Flashcards
What is an opportunity cost
An opportunity cost is something that is given up in order to do something else. For example this could be when a business must choose between two different office locations, they will
What is the primary sector?
The primary sector is made up of businesses that produce or extract
raw materials. This is the first stage of the production process and includes fishing, farming and mining.
What is the secondary sector?
The next stage in the production process is the secondary sector which makes or manufactures goods. They take the raw materials from the primary sector and turn them into finished goods. This often takes place in factories and includes food manufacturers such as Heinz and car manufacturers such as BMW.
What is the tertiary sector?
The final stage in the production process is the tertiary sector. This sector provides services. This includes estate agents, hairdressers and restaurants.
What is a sole trader?
A sole trader is a business that is owned and run by one person. There is only one owner, but they may have employees who work for them. Sole traders are usually start-ups or small businesses.
Advantages of sole trading?
- it is quick and easy to set up as a sole trader.
- the business owner(s) have a lot of control over the business and its money.
- it gives individuals the opportunity to be their own boss and make all the business decisions.
- it has low set-up costs.
Disadvantage of sole trading?
- it has the risk of unlimited liability.
- it can involve long work hours and stressful conditions.
- there is a high level of responsibility for the owner.
-often the owner performs many different roles in the business.
What is a partnership?
A partnership is a type of business that has between 2 and 20 owners. They decide to set up and run a business between them.
What is a deed of partnership?
A document that is signed by all of the owners of a business setting out the terms they must abide by and their obligations as owners.
Advantages of partnership?
- it is usually quick and easy to set up
- there is shared decision-making by the owners
- there is shared responsibility for debt by the owners
- partners bring more skills and ideas
- there is more capital available to invest
Disadvantage of a partnership?
- it can involve long work hours
-profits have to be shared between the partners
-conflict amongst owners can occur
-there is the risk of unlimited liability - one partner may let the others down by not upholding their responsibilities in the business
What is unlimited liability?
When the business owner or owners are personally responsible for all the debt of the business, no matter what the value.
What is a private limited company?
A private limited company can be a small or large business. A private limited company has limited liability and often these types of business have ‘Ltd’ after the business name.
What is limited liability?
When the business owner or owners are only responsible for business debts up to the value of their financial investment in the business
What are the owners of a private limited company called?
Shareholders
What are shareholders?
A part owner of a private or public limited company
What are advantages of a private limited company?
- the owners have limited liability
- it gives individuals the opportunity to be their own boss
- any new shareholders need to be invited, which protects the business from outside influence
- shares in the business can be sold to raise money
What are disadvantages of private limited company?
- there is often more paperwork
- in some instances, other people are able to view the business’ financial information
- it can be very time consuming to set up
- the business may require outside professional help to manage its finances
- shareholders will expect to receive a percentage of the profits as
dividends
What is public limited company?
-As a business grows, it may choose to become a public limited company (PLC). In a PLC, shares are sold to the public on the
stock market.
-People who own shares are called ‘shareholders’.
-They become part owners of the business and have a voice in how it operates.
- A chief executive officer (CEO) and board of directors manage and oversee the business’ activities.
Advantages of being a PLC?
- the business has the ability to raise additional finance through share capital
- the shareholders have limited liability
- increased negotiation opportunities with suppliers in terms of prices because larger businesses can achieve economies of scale
Disadvantage of being a PLC?
- it is expensive to set up, requiring a minimum set up cost of £50,000
- there are more complex accounting and reporting requirements
- there is a greater risk of a hostile takeover
by a rival company as the company cannot control who buys its shares - shareholders will expect to receive a percentage of the profits as
dividends - shareholders may clash when making decisions about the businesses
What is an aim
What the business wants to achieve
What is an objective
The targets and steps taken to help businesses achieve their aims and is outlined in a mission statement
What is a strategy
Allocating business resources to achieve a long-term goal
